Bleak times for British broadcaster

ITV cutting program budget by 10%

LONDON — Six months ago, the execs who run U.K. terrestrial giant ITV were adamant on one point: Credit crunch or not, the web’s £1 billion ($1.38 billion) program budget, almost all of it earmarked for local shows, was the key to the troubled web’s recovery and would be maintained at all costs.

Not anymore.

On March 4 ITV announced that, following a $3.3 billion loss, its program budget was being cut by 10%.

“It’s a scalpel, not an ax,” says ITV topper Michael Grade, hired two years earlier to reinvigorate the flagging giant.

However, ramping up production and better exploitation of its content were key elements that Grade was banking on to dig ITV out of its $1 billion debt hole.

Now observers are wondering if the latest surgery might kill, rather than cure, the patient.

Once a confident rival to the mighty BBC and famed for its soap operas and mass appeal dramas, such as Helen Mirren starrer “Prime Suspect,” the story of ITV’s fall makes sorry reading. Since Grade took the helm in January 2007 the value of the stock has fallen by 80%. Recently it hit a new low of 23¢.

Meanwhile, scandals over fraudulent competitions have eroded public trust and further damaged the brand.

ITV’s failure to address the multi-platform age and grow subscription-based businesses or sizable production revenues has made it horribly vulnerable to the downturn in advertising spend.

The web’s response to the digital challenge was “desperately slow,” Grade recently admitted.

Now with 600 additional staff being pink-slipped, in addition to around 1,000 jobs lost already, ITV’s immediate prospects look bleak.

To save coin, the long-running high-profile drama “Heartbeat” is being “rested” and one big studio is being mothballed.

“There is no doubt that the results presentation painted a very honest view of ITV’s position and the risks that lie ahead,” says the web’s former director of television Simon Shaps. “The key question is whether the very significant cost cutting can help the company weather the storm of the recession.”

In common with all other traditional media businesses, ITV’s problems are compounded by structural changes as broadband-delivered home entertainment and info gain in popularity and more people ignore TV ads due to digital video recorders.

But there is hope.

“In terms of its on-screen performance ITV is doing all the right things,” says Paul Richards, a media analyst at Numis Securities. “ITV’s been completely overwhelmed by the top-down deterioration in the U.K. economy.

“It went into the downturn in bad shape because of the level of debt on its balance sheet and a huge pension fund deficit.” This stands at $246 million.

Pressure is mounting on Grade from investors who want him to step down from his dual role as chairman and CEO and work alongside a new CEO. The thinking is that only in these circumstances will investors support a rights issue that will help ease ITV’s debt burden.

“There are a number of strong internal candidates to succeed Grade,” says Richards.

Meanwhile, the government’s Digital Britain report, released last month about the shape of local broadcasting in the digital age, has thrown up a variety of merger proposals.

These include a possible merger between ITV and Five, pan-European broadcaster RTL’s struggling U.K. terrestrial web, or a hook-up with government-owned, advertising funded Channel 4.

Richards believes the public/commercial merger with C4 is “too ambitious for regulators, but in the current environment I wouldn’t rule out anything.

“If ITV can get through the next couple of years, it has a very strong future because the main structural changes resulting from the multi-channel (satellite and cable) competition have largely already occurred.”